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Managing Risks in Uncertain Times
2
A Family Business and SME Perspective
Panel Session
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OUR MODERATOR
Mr. Loutfi K. Echhade, CMA,CFM, CPA, CFF, CIA, CCSA, CFSA, CISA Financial and consulting advisor, HNW Family Business, MENA at EY
OUR PANELISTS
Nabil Nazer Chief Investment Officer,
Al Sulaiman Group
Abdur Rahim Ghulam Nabi Senior Advisor to Assistant Director General
Finance, Commercial, Customer Relations Division and Innovation & Future Unit
Dubai Airport Freezone Authority
Bashar Saidi, Head of Finance, Group Operations & NAWAT, Group Finance | FAB
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AGENDA 5
1. Family Business around the World and in the Middle East
2. Key Challenges for Continuity and Sustainability
3. Family Business Conflicts
4. Key Risks
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What do we mean by “Family
Business”?
“An enterprise where an entrepreneur and/or family members influence the firm; by their participation, ownership, control, strategic preferences, dynastic will, and the culture and values they impart.”
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Family Businesses around the world….
...an epitome of lasting success
Some of the world’s most successful companies are family businesses !!
Americas • Wal-Mart • Ford • Cargill • Koch • CEMEX
Asia • Toyota • Samsung • Tata • LG • Hyundai • Doosan • Reliance
Europe • Peugeot • LVMH • Arcelor • Mittal
Australia • News Corporation • BGC • VISY • RAMSAY
• IKEA • BMW Group • Bosch • SHWARTZ • H&M
MENA • Kanoo • Zamil • Alfutaim • Abdullatif Jameel • Alghanim
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What have they done Differently
They have sustained across generations and have governance structures that have strong involvement of members of founding family What have these family businesses done different …..their success mantra:
► Prudence in investing capital ► Retention of companies through bull and bear markets ► Long term development of talent ► Focus on core business ► Maintenance of strong and enduring values ► Emphasis on long term performance over quarterly gains
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Global Family Business Statistics
► Family businesses generate an estimated 70% of the global GDP ► 30% of UK GDP is generated by family businesses with a combined turnover of £1.1 trillion and £ 82 billion in taxes ► In the US, an estimated $ 41 trillion will transfer from one generation to the next over the next two decades ► 55% of the wealthiest 100 billionaires are family business leaders or owners ► About 30% of the companies in the capital market are family businesses
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Family Businesses in MENA
► Over 80% of businesses in MENA are family owned. They contribute 60% of GDP
► 90% have family members in the board
► 4% have performance evaluation mechanism
► About 60% of family businesses are in the 1st and 2nd generation
► Less than 14% have formed well documented governance frameworks such as family constitution (charter) and 27% are in progress
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Family Businesses in MENA (Cont.)
► 50% state professionalizing the business is a key challenge ( 43% globally) ► 53% claim alignment between family and business strategy ( 69% globally) ►91% of family businesses have no succession planning ► 48% claim the need for continuous innovation ►25% have active gender equality ►35% believe their business is prepared for data breach or cyber attack
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Oldest Family Businesses in the World
1. Kongo Gumi – Japan • Established in 578 • Generation: 48th
• Activities: Construction, Osaka Castle and Buddha Temple
2. Hoshi Ryokan – Japan • Established in 718 • Generation: 46th
• Activities: Construction and Operation of Hotels
3. Chateau de Goulain – France • Established 1000 • Generation: 30th
• Activities: ownership and management of museums
Key Challenges for Family Firms
External and Internal challenges for Family Firms in the coming years
Key Challenges
for Family firms
Current economic slowdown
Increased competition: Regional & Global
Political and Regulatory Risks
New Technologies
Ext
erna
l Pre
ssur
es
Inte
rnal
Pre
ssur
es
Transfer of company control to the next generation
Increased pressure to grow the business
Typical family business needs to grow at 18% each year to maintain the same level of wealth across generations
Greater difficulty in maintaining control over the business
As shareholders become more in number, centralized control over business strategy and decision making becomes more difficult
Transfer of power to the next generation primarily creates 2 key challenges:
Family business Multiple roles of actors in family firms
Tagiuri & Davis model (1982) 1. Family, non-owners, non-managers 2. Non-family, non-manager owners 3. Managers only 4. Family owners 5. Owners & managers 6. Non-owner, family managers 7. Family owner, managers Systems move from higher to lower degrees of overlap as business grows and family members mature
Building the ‘immortal’ family business
To remain successful, key executives need to understand the key challenges that are unique to the family business
Structuring family involvement
Sustaining family values
Sound management of family wealth Viable growth plans
Continued commitment to the Family
Continued commitment to the Family Business
BU
SIN
ESS
FAMILY
Strong governance mechanisms
Dynamic business portfolio
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Top 10 Risks Facing Family Business
1. Developing a succession plan or exit strategy 2. Grooming the next generation of leadership 3. Political and economic instability 4. Government policy, regulations, and cost of
compliance 5. Access to capital and financing 6. Finding and keeping qualified staff 7. Generating more revenue 8. Innovation 9. Keeping up with technology 10.Tax burdens and complexity
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Thank you.
Managing Risks in Uncertain Times
18
A Family Business and SME Perspective
Panel Session
OUR PANELIST
Nabil Nazer Chief Investment Officer,
Al Sulaiman Group
2
Real Estate
Financial & InvestmentServicesRetail & Consumer
3
Single Business Entity
Combination of Businesses
Family Managed Group
Independently Managed Group
4
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Managing Risks in Uncertain Times
1
A Family Business and SME Perspective
Panel Session
OUR PANELIST
Bashar Saidi, Head of Finance, Group Operations & NAWAT, Group Finance | FAB
3
This is an anxious time for organizations who must navigate the stormy waters of both funding and delivering positive results to survive in this increasingly uncertain world.
How can organizations plan for, address and manage risk in an environment that is ever-changing?
Organizations in general are facing operational risk that includes the possibility of not achieving targets, reputational damage and/or wastage or misuse of resources due to several challenges and risks.
Assessment of potential risks and developing a plan to mitigate risks helps organizations achieve their goals and function optimally so that they can effectively manage funding and be resilient when dealing with a changing environment
CHANGING ENVIRONMENT, RISKS AND CHALLENGES
WHY SMEs AND FAMILY BUSINESSES?
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Family Businesses contributing 60% to GDP
and employing over 80% of the workforce in the Middle East
SMEs contribute 40% of Dubai’s GDP, count for 95% of the total enterprise population and
employ around 42% of Dubai’s workforce
Information based on Middle East Family Business Survey 2016 by PWC and Dubai SMEs Report - Department of Economic Development
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▸Internal - Succession planning
issues - Increase in number of
shareholders - Conflicts of interest - Communication - Perceptions and
expectations
▸ External - Economic Slowdown - Increase level of
competition: Local, regional and global
- Cash flow and funding cons tra ints
- New and advanced technologies
- Political and regulatory
CHALLENGES AND MAJOR RISKS
Organizations, SMEs and Family Businesses, are facing two major types of risks and challenges:
WHAT’S GOING WRONG
6 Managing these risks and challenges should be a key priority for these organizations but many do not do it well. The reasons organizations fall short include: Poor capacity within the organization
Lack of clarity about where the responsibility lies for risk management
Risk management is not embedded in the day-to-day activities
The risk management plan is not used as a tool for discussing the
organization’s attitude towards the risks or the effectiveness of risk mitigation activities.
A lack of incentive to manage risk
High costs associated with managing risk
Lack of consistency between initial identification of risks and subsequent mitigation activities to manage those risks.
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ASSESSING THE STATE AND CHARACTERISTICS
To address these challenges we need to assess the state and the characteristics of these organizations based on the following areas: Degree of International Orientation (International Business Operations)
Prevalence of Innovation
Level of IT Adoption
Degree of Human Capital Orientation
Degree of Corporate Governance Orientation
Scalability Potential (Capacity Utilization and Fixed Costs)
Level of Access to Finance (Source of Finance to Commence a business,
source of Finance for business operations and expansion and Type of Finance accessed by organizations)
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WHAT STAGE IS YOUR BUSINESS AT?
Recognizing which stage your business is at is crucial to know what information and support systems you need in place to
manage it successfully.
Your CMA is one of the most important elements in putting in place a workable effective control system for your business and providing you with financial information and advice to
help you take the right decision
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WHAT STAGE IS YOUR BUSINESS AT?
If you are still in the start-up phase, 1 to 3 years, typically you are: A one man band Under capitalized No financial reserves to fall back on Inexperienced in being in business Trying to cope with everything Still establishing a place in the market
If you are in the 3 to 5 year stage, typically you are: Learning how to manage employees effectively Learning to delegate, which most business owners really struggle with Coping with rising overhead costs Overtrading, where your business grows quicker than your profits Doing crisis management If you are in business between 5 to 10 years, typically you are: Financing expansion and growth Trying to maintain competitiveness Controlling a growing business Struggling with indecision on the future path of the business
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RECOMMENDATIONS AND INSIGHTS
Refine and review your business plan for the changed environment…Plan for emergency
Review your cost structures for savings and prioritize your expenses
Improve your productivity and cash flow Prospect for new clients but also strengthen relationships and get direct with existing
customers. Do not forget to build your online presence Take care of your employees and give them an education
Adopt appropriate risk management strategies and create your robust governance and
control framework
Seek funding but do not fully rely on external debt. Work out the equation
Do your Succession Planning: Failing to plan is planning to fail. Get experience outside the family firm, Strengthen the role of the Board, Broaden the decision-making process, Develop a strategic plan for the medium term and Clarify what the retiring generation will do
Diversify your wealth
Make it professional in the Family Business
Communicate your decisions after a process of consultation and discussion. Do not dictate because you are the owner
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ACCESS TO FINANCE - SMEs
Majority of SMEs (80%) had used their personal money /savings / equity as the primary source of finance to start a business
Businesses largely tend to re-invest business profits, rather than resorting to bank finance to expand business operations
Only 23% of SMEs have accessed bank finance in the last five years (compared to 25% of firms in the MENA region, 45% in South Asia, 57% in Eastern Europe). In comparison, around 56% of SMEs indicated a need for bank finance for their business operations
*Source (Dubai SMEs Report – Department of Economic Development)
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ACCESS TO FINANCE - SMEs
One of the major challenges for SMEs is the funding constraints and the access to finance
Financial Institutions are currently aware of the importance of this sector and the necessity to nurture it to contribute to the local economies, increase their profits and being partners in success with these SMEs. Based on this, several bank started many initiatives to support SMEs and youth projects
Financial Institutions are governed by strict policies and procedures and they have to be compliant with the rules and regulations to protect the interests of their stakeholders
SMEs on the other hand are seeking funding by moving to other sources of financing, such as Venture Capitalists and Angel Investors, which is considered as a lost opportunity for the Financial Institutions
Financial Institutions needs to adopt creative strategies and initiatives, build a trust factor and offer these businesses creative tailored products that helps them to start up and grow their businesses
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Thank you.
Managing Risks in Uncertain Times
1
A Family Business and SME Perspective
Panel Session
OUR PANELIST
Abdur Rahim Ghulam Nabi Senior Advisor to Assistant Director General
Finance, Commercial, Customer Relations Division and Innovation & Future Unit
Dubai Airport Freezone Authority
KALHOUR GROUP OF COMPANIES
KALHOUR GROUP OF
COMPANIES
KEY FACTS
ESTABLISHED
1981 COMPANIES
5
CLIENTS
1000+
COUNTRIES
30 QUALITY
ISO DIGITAL
ERP
KALHOUR TRADING
PIPING INTERNATIONAL
KALHOUR OILFIELD
EQUIPMENTS
ROAD MASTER
EQUIPMENT
STEEL CRAFT
KALHOUR GROUP OF
COMPANIES
FATHER
GROUP CHAIRMAN
SON
KALHOUR TRADING
ELDEST SON
ROAD MASTER
SON
KALHOUR OILFIELD
YOUNGEST SON
STEEL CRAFT
GOVERNANCE STRUCTURE
KALHOUR GROUP OF
COMPANIES
RISKS
CONFLICT
LEGACY
CONTINUITY
KALHOUR GROUP OF
COMPANIES
RISKS
CONFLICT
LEGACY
CONTINUITY
CORPORATE CULTURE
PLANNING
KALHOUR GROUP OF
COMPANIES
RISKS
CONFLICT
SUCCESSION
CONTINUITY
CORPORATE CULTURE
PLANNING
HABIBI BUSINESS
THANK YOU KALHOUR GROUP OF
COMPANIES
20
Q&A Session
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